Investing in PE and UK tax

masonic

george4064 said:

wmb194 said:

[Deleted User] said:

george4064 said:

If I were to make a commitment to a Private Equity fund and hold in a GIA, what tax would I have to pay (if any) on the distributions the fund will make?

I suspect most people would not be able to invest directly in a PE fund (unless you are an employee/member of the adviser).  But let's assume you can, as you will invest via tax transparent vehicles you won't pay tax on the distributions but will pay tax on your share of the underlying income and gains (hopefully most of which will be distributed to you soon after the cash is realised).  In more (but very much simplified) details ...

To invest in a typical PE fund you'd normally make contributions to an LP (e.g. an English LP).  The LP would invest in equity and shareholder loans in the companies it invests in.  The LP is transparent for UK tax and so you are taxed on what happens below the LP rather than what cash you get. So you are not taxed on money distributed to you, but things that happened that led to that money being capable of being paid to you.

From a tax perspective, you would effectively get a combination of (i) a tax-free return of your contribution (e.g. following a refinancing and which would not taxable), (ii) interest (e.g. paid on the shareholder loan and taxable), (iii) dividends (e.g. on preference shares that receive a dividend and taxable), and (iv) capital gains (e.g. on disposal of equity). 

You are likely to also have dry tax charges (e.g. because UK tax is due when income and gain arise, not when distributed (e.g. because there's ascertainable deferred consideration), and also because income is used to pay expenses that aren't deductible).  It gets more complicated when, for example, the underlying investments are outside the UK (e.g. there may be some more dry foreign tax charges, some foreign tax credits, etc).

If you are an employee/member who gets carry then it's complicated.  But it's basically taxed on the higher of (i) as described above or, (ii) at the 18%28% CGT rate or income tax plus NIC rates (depending on whether your investment is an ERS and the weighted average holding period). 

Or it could just be an investment trust and it'll be nice and straightforward.

It's not an IT. Previous vintage of this fund is: https://www.inflexion.com/funds-and-investors/buyout/

It must be popular, as the server seems to be overloaded. Presumably they will be releasing a prospectus before starting to take punters' money. Or do you have to go in blind?

Edit: from cached information on Google, this seems to be some sort of offshore collective investment, so if it is not UK-reporting, your distributions may be taxed at income tax rates in the UK.

ChilliBob

Surprised you're able to invest in it, I would hand thought you'd need to be a 'accredited investor', most/all LPs in PE funds I used to look into had to be.

Minimum commitments for PE funds used to be *very* high though and outside the remit of most retail investors.

Typical life cycle of a PE fund you won't see any distributions that soon anyhow. 

You probably know all this but the listed FOF route is more common for retail investors.

Oh and watch out for fees! 

ChilliBob

[Deleted User] said:

ChilliBob said:

Oh and watch out for fees! 

My guess is the OP works for the manager and so (i) fees are good, and (ii) the OP won't suffer those fees.

Could be a whole load more complex then -, could in effect be an emplpyee 'share scheme' in a way - the tax treatment of these vary depending on when and how they were setup.